Carol Spieckerman: Tom, I think the timing couldn’t be better for us to speak considering how the same-day delivery movement has heated up even in just the past few weeks.
Tom Allason: Absolutely.
Spieckerman: I know that Shutl has been operating in the U.K. for a few years and this month is slated as your big launch month in the U.S. Can you start out by telling me where you are with your U.S. launch?
Allason: Right now, we’re deep into retailer integration, so we’re open for business but have not yet made any retail deliveries. Depending on retailer implementations, those are planned to start within a month or so at the moment.
We’ve got integrated coverage now in our first three U.S. cities, which are New York, San Francisco, and Chicago, and we’re working on the next 17, which will be followed by Montreal and Toronto in Canada. We expect to integrate those by the end of this quarter.
Spieckerman: How does your UK coverage model differ from your model in the U.S.?
Allason: To put things into context, we’re doing 60 towns and cities across the U.K and have been live there for three years. We spent a year and a half getting everything right in London alone, before we moved outside London, but as soon as we did, we expanded to the next 20 cities overnight. We’re now at about the 75% penetration mark in the U.K. and will try to get up to 85%. We’ll never achieve that in the U.S., but we don’t need to. The first 20 metro areas that we’re doing in the U.S. give us almost three times the market that we have in 60 metro areas in the U.K., in terms of population. The U.K. has only 14 metro areas with a population of over 750,000, while North America has 67. So, the opportunities are huge, not just for us but for our retail partners. Actually, we’ve been more surprised by how similar everything is in the U.S. than how different it is. Some things like distances are obviously great, because they impact coverage, but we’re finding things much easier here than we did in the U.K., for a number of reasons.
Spieckerman: So, instead of taking a “test and learn” approach in the U.S., you’re really going for an aggressive roll-out.
Allason: Absolutely. As we see it, we’re the only ones in the world to be making this work at this scale.
Spieckerman: The same-day delivery space seems to be getting more crowded by the day, as start-ups, not to mention retailers, go after opportunities. Did you anticipate this acceleration and how does it impact your plans?
Allason: You’ve hit the nail on the head in terms of this space really heating up, and that’s actually a huge advantage for us. When we started doing same-day deliveries three years ago in the U.K., we had to convince retailers that there was a need for them. No one else in the world was doing anything like it, and it was tough for us just to create the market. We haven’t had to do that in our more recent work in the U.S. Everyone in America already knows they need it in order to compete against Amazon, and in fact, they’re all freaked out, and for a very good reason.
At the moment, Amazon is competing and winning in two key battlegrounds where multi-channel retailers are structurally disadvantaged: price and range. Using range as an example, Walmart sells around 2 million SKUs in the U.S. and Amazon sells a hundred times that. There’s no way that any multi-channel retailer is going to come near to competing with Amazon on product range, because Amazon isn’t limited by what it can fit in stores. Its only limitation is what it can fit in its warehouses, which are huge and located in the middle of nowhere, where land is cheap. By the end of this year, it will have 50 warehouses across North America. Meanwhile, multi-channel retailers need stores that are located near consumers, where land is expensive. Amazon doesn’t need many people in its warehouses and will need even fewer in the future, because its second-largest acquisition, Kiva, is a robotic fulfillment system that makes the company even more cost-efficient. That’s why the smart guys have been thinking about how they can differentiate against Amazon and create a new battleground.
Spieckerman: What about retailers’ site-to-store programs? Do they mitigate the Amazon advantage?
Allason: Convenience and service has also been a battleground for some time. The big trend in eCommerce over the last five years in the U.K. and the U.S., in absolute dollar terms, has been multi-channel: order online, collect in store. The problem is that retailers can’t get their stock to move where customers want it at the right time. This is why multi-channel retailers are so scared about what Amazon is doing, particularly in piloting a same-day delivery service in six metro areas, using warehouses across the U.S. During the last holiday season, they saw a 25% increase in conversion when same-day delivery was offered, regardless of whether or not the consumer ended up choosing it. Retailers realize that they have to do something, because otherwise Amazon is going to offer a much better convenience proposition than they can. That’s why you see Google and eBay doing what they’re doing, and you see Walmart talking about a number of possibilities.
Spieckerman: So you see yourself, in essence, helping these retailers compete against Amazon.
Allason: Exactly. That is the key to what we’re doing.
Spieckerman: Other companies, like Webvan, which were a lot more resource-intensive than you are, blew through millions of dollars in investment capital only to crash and burn. What makes Shutl different?
Allason: The big difference between our model and theirs is that they went and built their own delivery infrastructure. They hired their own drivers and built up a massive fleet. The unit economics don’t work with each courier doing one delivery at a time. The price just becomes too high for consumers to bear. In courier services, the couriers have to be doing multiple deliveries at the same time, even though these are only short-distance journeys, so the challenge is to have a massive amount of volume so that you can be cost-efficient within the delivery network and bring unit costs down. Those guys spent money to build their own delivery infrastructure without having the volume to support it. We haven’t done that. We’ve gone through 7,500 existing point-to-point courier companies that are predominantly serving the B2B delivery market, and we’ve aggregated their capacity into a technology platform. These guys are already doing deliveries and they already have a sufficient supply chain and a low-unit delivery cost. That’s why our model will work where others didn’t.
Spieckerman: Some have said that same-day delivery is a solution in search of a problem. You clearly believe that it’s a problem to be solved. Do you think that solution providers, including yourself, are actually driving expectations of faster and faster deliveries, rather than responding to consumer preferences?
Allason: Consumers aren’t expecting same-day delivery yet because they haven’t had it available, but the thing about expectations is that they only move forward, and they’re doing so faster today than they have at any other point in human history. Delivery has hardly changed over the last 20 years, so neither have consumers’ expectations, but they will.
When you’ve got Amazon, Google, eBay, and Walmart pushing same-day delivery, consumers are going to be expecting it. Our proposition is actually “get it when you want it,” which might be as little as 60 or 90 minutes away, 24 hours a day, 365 days per year. This can be offered to the shopper at a price that is comparable to the price for standard delivery and sometimes it’s even free. Our view is that consumers are going to start expecting that convenience, and then demanding it. Of course, I’m slightly biased, but I see that as inevitable.
Spieckerman: You’ve obviously anticipated the inevitability of consumer expectations for faster turnarounds, but in retail, customers tend to expect prices to continue to go down as well. How are you going to address that?
Allason: We already have. Today, over a quarter of our deliveries are already free for the consumer. Consumers expect free delivery, even if there’s really no such thing in terms of cost to the retailer. Retailers are offering free delivery to customers for a reason, because it makes them more likely to purchase. Oasis, one of the U.K.’s largest fashion retailers, offers Shutl for free to customers who spend over £75.00, and for £4.95 if they spend less than that. Our average cost to Oasis is much greater than £4.95, but Oasis has realized that the incremental profit that they generate from having a higher rate of conversion and a higher rate of customer satisfaction exceeds the cost of that subsidy. This is the same theory that retailers have been using to offer free delivery for years. We are very focused on making sure that the prices of our service continue to go down, not just through retail and subsidization, but also though more volume, getting better deals with our current partners, and being able to group deliveries. We only get paid if the consumer chooses Shutl and the consumer is not going to choose it if the price is too high, so we’re very motivated to get our prepositions to the right price points.
Spieckerman: Is Shutl offered as a delivery option at checkout time on retailers’ websites?
Allason: Sometimes it’s offered even earlier, or within retailers’ set up page as part of their homepage advertising, because our proposition is all about attracting and retaining customers. What we offer can’t be matched by Amazon, and the consumer needs to know that, so many of our retail partners offer Shutl within the setup page. We’re trying to be the PayPal of awesome delivery. Our platform integrates at every stage of the retailers’ journey. In a couple of hundred milliseconds, it takes data from our retail partner that enables us to provide a promise to the consumer.
Spieckerman: In terms of pricing models, the one-fee subscription model that Amazon Prime uses has been really effective in terms of driving loyalty and keeping people within Amazon's ecosystem. What are the advantages or disadvantages to using more of a pay-as-you-go model?
Allason: We like the subscription model, too, but the fact of the matter is that, unless you’ve got the same kind of range that Amazon has, you can’t provide it. We would like to use a subscription model when we have enough retailers to be able to do so, but that’s not the case today. However, the advantage of the pay-as-you-go model that we have is that many consumers already get Shutl for free with no subscription at all.
Spieckerman: Do you see Shutl as a branded solution or as a private-label solution? Are you going to be working both models?
Allason: We’re never going to white label. Everyone has asked that, and to be honest, the answer is the same for everyone.
Spieckerman: So you’re going to always insist on a branded, identified solution with your name on it?
Allason: Absolutely. Name and logo.
Spieckerman: Do you see any danger of your retail partners initially partnering with Shutl, but then attempting to build in-house solutions down the road?
Allason: I don’t, because what we’re doing is very difficult. It’s way outside the core competencies of any retailer. If anyone would be able to do this, it would be a company like UPS, but it’s already looked at what we’re doing and told us that it couldn’t do what we do and they went on to invest in us. We’re a software business, not a logistics business, and the advantage of our platform is that we leverage the volume of all of our retail partners to offer awesome pricing and really high-quality service. This just isn’t something that any retailer can do.
Spieckerman: So maybe your best customers are those who’ve tried it themselves?
Allason: Yes, and I think one of the things that they’re most afraid of is doing it themselves and failing. I think we’re safe. The nice thing about what we do is that we have no channel conflicts with our retail partners, because consumers can’t buy stuff without them. The consumer buys stuff from our retailers and we’re their humble service provider.
Spieckerman: What’s next?
Allason: We’re really innovating in the last mile, in terms of the last link in the supply chain. What gets me really excited, as an opportunity, is what’s being done to innovate across supply chains to speed them up. We’re seeing 3D printers used in practical applications, and whole supply chains that once took weeks or even months being shortened to a couple of hours. The technology is available today to do that, and things that used to cost millions or hundreds of thousands of dollars can now be had for tens of thousands. The potential to have 3D printing technology on every street is not too far away and we could still do that last mile fulfillment. The thing that would get scary for us is when the capability gets into every home like replicators from Star Trek. Then you have no need for delivery and that would be scary.
Spieckerman: So you embrace many possibilities but only up to a point.
Allason: Exactly. When it starts to do harm to our model, then it’s a bad idea.
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